Dow closes at record after Fed keeps rates intact

September 17, 2014

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NEW YORK (AP) — The stock market got the reassurance it wanted from the Federal Reserve Wednesday.

The U.S. central bank signaled that it would keep its short-term interest rate near zero for a while yet, and investors pushed the Dow Jones industrial average to a record high. Low rates have been a boon to the market by helping stimulate the economy and making stocks more attractive compared with bonds.

“The Fed is not going to take the punch bowl away,” said Brad McMillan, chief investment officer for Commonwealth Financial. “They didn’t want to spook the market.”

Major indexes drifted before the Fed released a statement at 2 p.m. Eastern time signaling little change in its interest rate policy. Stocks in all three U.S. major indexes rose. The gains were small, but broad. Seven of the 10 industry groups of the Standard & Poor’s 500 index rose, led by materials stocks.

In its statement following a two-day policy meeting, the central bank retained language that it plans to keep short-term rates at a record low for “a considerable time” after it ends its monthly bond purchases in November. Many investors interpret that to mean the first hike won’t come until the middle of next year.

The Dow gained 24.88 points, or 0.2 percent, to end at 17,156.85 — its 16th record high this year. The S&P 500 edged up 2.59 points, or 0.1 percent, to 2,001.57, falling short of its own closing high of 2,007.71 from Sept. 5.

The Nasdaq composite finished higher by 9.43 points, or 0.2 percent, to 4,562.19, still well below its dot-com era peak.

Shares of home builders jumped after an index of builder confidence for new homes rose to its highest level in nearly nine years. Lennar Corp. rose nearly 6 percent, the most in the S&P 500 index.

The S&P 500 has risen 8 percent in 2014, extending the bull market into a sixth year. Companies have been hiring at a solid pace and manufacturing and construction have picked up.

John Lynch, regional chief investment officer for Wells Fargo Private Bank, said the stronger economy is a big reason that stocks have risen.

“The economy is tracking at a 3 percent rate of growth, and corporate profits are at a record level,” he said, shortly before the Dow’s record close.

But the good developments have also worried the market because they could prompt the Fed to raise interest rates fast to head off inflation.

On Wednesday, at least, those concerns eased. Even before the Fed policy statement, there was news that inflation remained tame. U.S. consumer prices edged down in August, the first monthly drop since the spring of 2013, the government said.

Among stocks making big moves:

— DuPont surged $3.42 to $69.25, or 5.2 percent, the biggest gain in the Dow by far. Investors bought the stock on news that activist investor Nelson Peltz had sent a letter to the company’s board suggesting it split in two. His Trian Fund Management LP said it has been in private talks with DuPont for more than a year to boost shareholder value and improve its financial performance.

— FedEx rose $5.05, or 3 percent, to $159.71 after its quarterly profit beat forecasts by financial analysts. The company benefited from an increase in shipments to people shopping online.

— General Mills, the food company behind Cheerios cereal and Yoplait yogurt, fell $2.35, or 4.4 percent, to $50.83 after reporting disappointing quarterly results. Its stock was the third-biggest loser in the S&P 500.

In government bond trading, the yield on the 10-year Treasury note edged up to 2.62 percent, from 2.59 percent late Tuesday. The yield has moved between a high of 3 percent and a low of 2.34 percent this year.

Oil fell after the Energy Department reported a 3.7 million barrel increase in U.S. crude inventories last week. Most analysts had expected a decline, which is typical for this time of year. Benchmark U.S. oil fell 46 cents to $94.42 a barrel.

Brent crude, a benchmark for international oils imported by many U.S. refineries, dropped 8 cents to $98.97 a barrel in London.

Gold, which was flat minutes before the Fed news on interest rates, ended down 80 cents, or 0.1 percent, to $1,235.90 an ounce. Silver rose 1.3 cents, or 0.1 percent, to $18.73 an ounce. Copper fell 2.3 cents, or 0.7 percent, to $3.14 a pound.